Outperforming the Gold Price
From - Gold Forecaster - Global Watch 24th August 2006
With gold Exchange Traded Funds steadily growing irrespective of the gold price now two interesting features are emerging in their performance.
-
Local
influences are having differing effects. South Africa has a history
of currency volatility far higher than the Australian $, an international
feature likely to persist. As a result the demand for the E.T.F. in South
Africa is outpacing that in Australia. NewGold, the South African gold
E.T.F. has overtaken the older Australian gold-backed ETF in size, growing
to 350,000 oz [10.89 tonnes] since launch in November 2004. We see the
future of the Rand weakening substantially long-term, against hard currencies,
making these gold price related shares more attractive to local South
Africans than to Australians, who also have a greater flexibility in
their choice of foreign investments than South Africans, bound as they
are by Exchange Control limits as they are. -
The
second feature of note that has developed is the performance of the
Exchange Traded Fund against gold mining company shares. Charting the
annual performance of the J.S.E.' gold and Top 40 indices against that
of NewGold, a period that included a meteoric rise in the price of gold,
the E.T.F. and other two indices ended the period at very nearly the same
level. However, the gold index, which is sought out because of companies'
gearing to the gold price, showed steep peaks and troughs over the year
to May against NewGold's steadier ascent. While it is true that the lack
of company risk in the gold-price-linked E.T.F. shares makes them attractive
and a reflection of the moves in the gold price, gold shares are hugely
geared and likely to earn far more from a gold price move up than are the
shares of E.T.F.'. It is a fact that if the gold price moves up or down
then the gold shares will move even more both ways. Traders, whether day
traders or longer term Traders like the volatility of gold shares, but
most long-term investors prefer stable growth. This is reflected in the
shares register of the E.T.F.', where some 95% of NewGold is held by institutional
investors, who are now also offered warrants.
But
it is also clear that there can be a time lapse between a move in the gold
price and moves in shares prices. But the subsequent moves in share prices
can be far greater than the equivalent moves in the gold price, both ways.
In theory and for traders with alacrity, one can take advantage of both moves.
Indeed some of the most established and largest gold shares will move early
in a move up in the gold price, with the medium quality following and the average
Junior following the two. On the way down the reverse is usually true. Clearly
a gold mine benefits from an average gold price, which makes up its income,
whereas the gold price is independent and leading the average gold price. Like
all trading we can see these as general rules not absolutes, but ones from
which traders can gain a lead on the gold price and outperform it. There are
many ways in which one can outperform the gold price, which utilized in a coordinated
manner can produce amazing performance levels.
Gold Forecaster is shortly to enter the fund management field specializing in outperforming the gold price, as we have done in the past. Any Investors of size [$5m+] who are interested, are welcome to contact us.
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Author: Julian D. W. Phillips
Julian D. W. Phillips
Gold-Authentic Money
"Global Watch: The Gold Forecaster" covers the global gold market.
It specializes in Central Bank Sales and details, the Indian Bullion market
[supported by a leading Indian Bullion professional], the South African markets
[+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $,
Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the
influential gold price factors across the globe, so as to truly understand
the global reasons behind the gold price.
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